Sam Fletcher
Senior Writer
HOUSTON, Jan.12 -- Energy prices continued to escalate Friday as cold weather blanketed much of the US, prompting fears of additional draws on US crude inventories that were already at the lowest level in 28 years.
Bitter cold gripped the Northeast US through the weekend, dropping temperatures to record lows in many places, icing roads, and prompting fears of localized fuel shortages. Cold weather was blamed for at least three deaths.
Natural gas
The February natural gas contract shot up by 19.3¢ to $7.29/Mcf Friday on the New York Mercantile Exchange, while the March position advanced by 23.5¢ to $7.19/Mcf. "In overnight [electronic] trading before Friday, the market hit a fresh contract peak and 10-month spot chart contract high of $7.63[/Mcf], said analysts Monday at Enerfax Daily.
"Meteorologists are predicting temperatures in the Northeast will moderate early this week before plunging down again to below-normal levels by midweek," they said.
In a separate report issued Monday, Stephen A. Smith, founder and president of Stephen Smith Energy Associates, Natchez, Miss., noted that weekly natural gas prices have averaged $5.58-6.74/Mcf for the last 6 weeks and asked: "Shouldn't this level of gas prices be killing demand as it has in the past?"
He said, "We suspect, without the benefit of much useful weekly data, at least two contributing factors. First, distillate and NGL prices have also moved up sharply in the last few weeks." As a result, Gulf Coast gas prices have remained "a little below" those for alternative fuels and prevented "large-scale switching" at Gulf Coast refineries. It also "prevents large scale 'ethane rejection' from expanding gas supplies by leaving more ethane and propane in the gas stream," Smith said.
"A second factor possibly explaining the stubborn weather-normalized weekly deficit [in withdrawal of gas from underground storage] may relate to a new pattern of seasonality for imports of Canadian gas," he said. "By a rough and imperfect process of eliminating other factors, our modeling work suggests the possibility that net Canadian imports may have contracted rather than expanded in the mid-December round of extreme cold weather.
"If this is true, and this process is repeated with the extreme cold expected by several weather forecasts for the rest of January, then the domestic demand expansion of extreme cold weather could be amplified by the simultaneous contraction of net Canadian imports," said Smith.
Other energy prices
Heating oil for February delivery jumped by 2.55¢ to $1.01/gal Friday on NYMEX. Unleaded gasoline for the same month escalated by 3.36¢ to $1.02/gal.
The February contract for benchmark US light, sweet crudes gained 33¢ to $34.31/bbl on NYMEX, while the March contract advanced by 30¢ to $34.03/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., increased by 34¢ to $34.32/bbl Friday.
In London, the February contract for North Sea Brent oil gained 29¢ to $31.37/bbl Friday on the International Petroleum Exchange in anticipation that more cold weather would keep US demand high. Gas oil for January delivery increased by $8.50 to $293.75/tonne. The February natural gas contract jumped by 17.7¢ to the equivalent of $5.70/Mcf on IPE.
The average price for the Organization of Petroleum Exporting Countries' basket of seven benchmark crudes gained 47¢ to $30.88/bbl Friday. For all of last week as a whole, however, OPEC's basket price averaged $30.11/bbl, up by 58¢ from the previous week.
OPEC's basket price averaged $28.10/bbl in 2003, up from $24.36/bbl in 2002.
Despite currently high prices above OPEC's official target of $22-28/bbl, Chakib Khelil, Algeria's oil minister, called over the weekend for the group to retain its current production level through 2004.
Khelil noted that OPEC is currently overproducing its quota by some 1.6 million b/d with non-OPEC production expected to increase by 1.2 million b/d during the second quarter of this year, when world demand for oil is expected to decline by 2.5 million b/d. That should undermine oil prices, which Khelil claimed has been supported by speculation rather than by fundamentals of supply and demand.
Contact Sam Fletcher at [email protected]
